ccc_the renewable energy review

8/4/2019 CCC_The Renewable Energy Review

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The RenewableEnergy Review

May 2011


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Preace

The Committee on Climate Change (the Committee) is an independent statutorybody which was established under the Climate Change Act (2008) to adviseUK and devolved administration governments on setting and meeting carbonbudgets, and preparing or climate change.

Setting carbon budgets

In December 2008 we published our rst report, Building a low-carbon economy the UKs contribution to tackling climate change, containing our advice on the levelo the rst three carbon budgets and the 2050 target; this advice was acceptedby the Government and legislated by Parliament. In December 2010, we set outour advice on the ourth carbon budget, covering the period 2023-27, as requiredunder Section 4 o the Climate Change Act; the Government will propose drat

legislation or the ourth budget in Spring o 2011. We will provide advice oninclusion o international aviation and shipping in carbon budgets in Spring 2012,drawing on analysis o shipping emissions and a bioenergy review to be publishedlater in 2011.

Progress meeting carbon budgets

The Climate Change Act requires that we report annually to Parliament onprogress meeting carbon budgets; to date we have published two progressreports (October 2009, June 2010) and will publish our third report in June 2011.

Advice requested by Government

We provide ad hoc advice in response to requests by the Government and thedevolved administrations. Under a process set out in the Climate Change Act,we have advised on reducing UK aviation emissions, Scottish emissions reductiontargets, UK support or low-carbon technology innovation, and design o theCarbon Reduction Commitment.

Advice on adapting to climate change

In September 2010, we published our rst report on adaptation, assessing howwell prepared the UK is to deal with the impacts o climate change. We will publishurther advice on this in July 2011.

Preace 3


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Contents

Foreword 5

Committee on Climate Change 6Acknowledgements 8

Executive Summary 9

Chapter 1: Renewable electricity generation scenarios 39

Chapter 2: Developing options or renewable electricity 87

Chapter 3: Developing options or renewable heat 115

Chapter 4: Developing options or renewable transport 141

Chapter 5: Overview o renewable energy scenarios and impacts 153

4 The Renewable Energy Review |Committee on Climate Change


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Foreword

In May 2010, the Government asked the Committee on Climate Change to reviewthe potential or renewable energy development, and to advise on whetherexisting targets should be reviewed. We were asked to provide advice in twosteps: (i) initial advice on whether the targets or 2020 should be raised;(ii) subsequent more detailed advice on appropriate ambition beyond 2020.

In September 2010 we delivered our initial advice in a letter to the Secretary oState. We recommended that the 2020 target should not be increased but thatpolicy should ocus on ensuring that this stretching target is met.

In this report we set out our conclusions on the potential or renewable energy in electricity, heat and transport in the period to 2030 and beyond.

The report complements the conclusions and recommendations o our December

2010 report, The Fourth Carbon Budget reducing emissions in the 2020s, which setout our recommendations or the ourth carbon budget. Later this year, we willpublish a urther report looking in particular at bioenergy. This will complete theRenewable Energy Review and will orm part o our broader advice on inclusion oaviation and shipping in carbon budgets, as required under the Climate ChangeAct, and to be published in spring 2012.

Lord Adair Turner

Chair

Foreword 5


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Committee on Climate Change

Lord Adair Turner, Chair

Lord Turner o Ecchinswell is the Chair o the Committee onClimate Change and Chair o the Financial Services Authority.He has previously been Chair at the Low Pay Commission,Chair at the Pension Commission, and Director-general o theConederation o British Industry (CBI).

David Kennedy, Chie Executive

David Kennedy is the Chie Executive o the Committee onClimate Change. Previously he worked on energy strategy at

the World Bank, and the design o inrastructure investmentprojects at the European Bank or Reconstruction andDevelopment. He has a PhD in economics rom the LondonSchool o Economics.

Dr Samuel Fankhauser

Dr Samuel Fankhauser is a Principal Fellow at the GranthamResearch Institute on Climate Change and the Environmentat the London School o Economics and a Director at Vivid

Economics. He is a ormer Deputy Chie Economist o theEuropean Bank or Reconstruction and Development.

Sir Brian Hoskins

Proessor Sir Brian Hoskins, CBE, FRS is the Director o theGrantham Institute or Climate Change at Imperial College andProessor o Meteorology at the University o Reading. He is aRoyal Society Research Proessor and is also a member o theNational Science Academies o the USA and China.



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Proessor Julia King

Proessor Julia King CBE FREng is Vice-Chancellor o AstonUniversity. She led the King Review or HM Treasury in 2007/8on decarbonising road transport. She was ormerly Director oAdvanced Engineering or the Rolls-Royce industrial businesses.Julia is one o the UKs Business Ambassadors, supporting UKcompanies and inward investment in low-carbon technologies.

Lord John Krebs

Proessor Lord Krebs Kt FRS, is currently Principal o JesusCollege Oxord. Previously, he held posts at the University oBritish Columbia, the University o Wales, and Oxord, where hewas lecturer in Zoology, 1976-88, and Royal Society ResearchProessor, 1988-2005. From 1994-1999, he was Chie Executive othe Natural Environment Research Council and, rom 2000-2005,Chairman o the Food Standards Agency. He is a member o theU.S. National Academy o Sciences. He is chairman o the Houseo Lords Science & Technology Select Committee.

Lord Robert May

Proessor Lord May o Oxord, OM AC FRS holds a Proessorshipjointly at Oxord University and Imperial College. He is a Fellowo Merton College, Oxord. He was until recently President o TheRoyal Society, and beore that Chie Scientic Adviser to the UKGovernment and Head o its Oce o Science & Technology.

Proessor Jim Skea

Proessor Jim Skea is Research Director at UK Energy ResearchCentre (UKERC) having previously been Director o the PolicyStudies Institute (PSI). He led the launch o the Low Carbon

Vehicle Partnership and was Director o the Economic and SocialResearch Councils Global Environmental Change Programme.

Committee on Climate Change 7


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Acknowledgements

The Committee would like to thank:

The core team that prepared the analysis or the report. This was led byDavid Kennedy and Mike Thompson and included: Alice Barrs, David Joe, AnnaLeatherdale, Meera Sarda and Jonathan Stern.

Other members o the Secretariat that contributed to the report:Russell Bishop, Ute Collier, Kristoer Davies, Adrian Gault, Neil Golborne, Philip Hall,Alex Kazaglis, Swati Khare-Zodgekar, Eric Ling, Nina Meddings, Sarah Noah,Claire Thornhill, Emily Towers and Jo Wilson.

A number o individuals who provided signicant support:Stephen Allen, Graham Davies, Bruce Duguid, Robert Gross, Jackie Honey,Gordon Innes, Ewa Kmietowicz, Davinder Lail, Ben Marriott, Jon Parker,

Henry Shennan, Sarah Sheridan, Mark Thomas, David Wilson, and particularlyMichael Grubb who was a Committee Member until April 2011.

A number o organisations or their support, including Aldersgate Group,Association o Electricity Producers, BIS, Climate Change Capital, Conederation orBritish Industry, DCLG, DECC, Dera, DT, Energy Technologies Institute, Greenpeace,HMT, HSBC, Independent Generators Group, Inrastructure UK, Norton Rose,Oce or Renewable Energy Deployment, Ogem, Renewable Energy Association,RenewableUK, RSPB, Scottish Government, UK Business Council or Sustainable Energy,UK Green Building Council, Welsh Assembly Government, WWF.

A wide range o stakeholders who engaged with us, attended our expertworkshops, or met with the Committee bilaterally.


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Executive Summary

The RenewableEnergy Review


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Executive SummaryThis review o renewable energy was commissioned by the Government inthe May 2010 Coalition Agreement. It requested that we advise on the scope

to increase ambition or energy rom renewable sources. This has importantimplications or the sector investment climate and Government policy.

In September 2010 we summarised our analysis o 2020 renewable energyambition in a letter to the DECC Secretary o State. We argued that theGovernments 2020 ambition is appropriate, and should not be increased.Instead the ocus should be on ensuring that the existing targets are met: thisrequires large-scale investment over the next 10 years, supported by appropriateincentives.

Our overall conclusion in this review is that there is scope or signicantpenetration o renewable energy to 2030 (e.g. up to 45%, compared to 3% today).Higher levels subsequently (i.e. to 2050) would be technically easible. Equallyhowever, it would be possible to decarbonise electricity generation with verysignicant nuclear deployment and have limited renewables; carbon capture andstorage may also emerge as a cost-eective technology.

The optimal policy is to pursue a portolio approach, with each o the dierenttechnologies playing a role. In the case o renewable technologies such as oshorewind and marine, this will require the resolution o current uncertainties and theachievement o cost reductions. Thereore the message in our previous letter isreinorced: new policies are required to support technology innovation and toaddress barriers to uptake in order to suitably develop renewables as an option or

uture decarbonisation.

In this review we do our things:

Wesetoutnewanalysisoftechnicalfeasibilityandeconomicviabilityofrenewable and other low-carbon energy technologies.

Wepresentscenariosforrenewableenergydeploymentto2030andbeyond,and assess whether it is appropriate now to commit to increased ambition orrenewable energy in the 2020s.

Weconsiderimplicationsoftheselonger-termscenariosforambitionto2020.

Weassessthekeyenablingfactorsforinvestmentinrenewableenergytechnologies, suggesting high-level policy options as appropriate to deliverambition in 2020 and beyond.



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Box 1: Summary o ndings o the renewables review

Electricity generation

Arangeofpromisingoptionsexistsfordeliveringdecarbonisationofthe

power sector by 2030 at reasonable cost. This includes renewables, nuclearand carbon capture and storage (CCS).

Aportfolioapproachtotechnologysupportisappropriate.

Firmcommitmentsonsupportforoshorewindandmarinegenerationthrough the 2020s should be made now.

Theseshouldbeimplementedthroughthenewelectricitymarketarrangements.

Ifrenewableenergytargetsfor2020canbemetinotherways,amoderationo oshore wind ambition or 2020 could reduce the costs o decarbonisation.

Ambitionforoshorewindto2020shouldnotbeincreasedunlessthereisclear evidence o cost reduction.

Heat

Furtherfundingwillberequiredtosupportrenewableheatintheperiod2015-20 and in the 2020s.

Approachestorenewableheatandenergyeciency(i.e.theRenewableHeatIncentive and the Green Deal) should be integrated.

Accreditationofinstallersiscrucialifsupplychainbottlenecksaretobe avoided and consumer condence improved.

Transport

Acautiousapproachtotheuseofbiofuelsinsurfacetransportisappropriateuntil and unless sustainability concerns are resolved.

Renewable energy scenarios

TheGovernmentsplansforrenewableenergydeploymentto2020assetout in the Renewable Energy Strategy are broadly appropriate.

Ourscenariosforrenewableenergypenetrationin2030includeashareof30% (460 TWh) in a central case, rising to a maximum o 45% (680 TWh).

These illustrate the order o magnitude or likely and possible renewablecontributions to economy-wide decarbonisation.

Executive Summary 11


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Specic conclusions on power generation, renewable heat and transport(Box 1) are:

Power generation

The need or sector decarbonisation. It is crucial in the context o economy-

wide decarbonisation that the power sector is almost ully decarbonised by2030. Options or sector decarbonisation include nuclear, CCS and renewablegeneration.

Current uncertainties. The appropriate mix o low-carbon generationtechnologies or the 2020s and 2030s is uncertain. Key actors are: the ability tobuild nuclear to time and cost; whether CCS can be successully demonstrated atscale or coal and gas; the extent to which the planning ramework will supporturther investment in onshore wind generation; and the costs o renewablegeneration, especially oshore wind and marine.

Nuclear power currently appears to be the most cost-eective o the low-

carbon technologies, and should orm part o the mix assuming saetyconcerns can be addressed. However, ull reliance on nuclear would beinappropriate, given uncertainties over costs, site availability, long-term uelsupply and waste disposal, and public acceptability.

CCS technology is promising but highly uncertain, and will remain so until thistechnology is demonstrated at scale later in the decade. In the longer term,storage capacity may be a constraint.

Onshore wind is already close to competitive, although investment has beenlimited by the planning ramework, and is limited in the long term by siteavailability.

Oshore wind is in the early stages o deployment and is currentlysignicantly more expensive than either onshore wind or nuclear. However,the existence o a large-scale natural resource, reduced local landscape impactcompared with onshore wind and the potential or signicant cost reductionmake it a potentially large contributor to a low-carbon uture.

Marine technologies (wave, tidal stream) are at the demonstration phaseand thereore more expensive again, but may be promising, given signicantresource potential and scope or cost reduction.

A portolio approach. Given these uncertainties, a portolio approach to

development o low-carbon generation technologies is appropriate. This should include market arrangements to encourage competitive

investment in mature technologies such as nuclear and onshore windgeneration.

It should also include additional support or less mature technologiesincluding CCS, oshore wind and marine, where there is potential or the UKto drive these technologies down the cost curve. This is in contrast to solar PV,where the pace and scale o development will be determined outside the UK.



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Commitments or the 2020s. As part o a portolio approach, the Governmentshould commit now to an approach or supporting oshore wind and marine inthe 2020s. The approach should avoid stop-start investment cycles and providecondence to supply chain investors o a long-term business opportunitybeyond the next decade.

Firm commitments. Given the need to provide investor condence, supportshould be provided through rm commitments. Such commitments should beimplemented through the new electricity market arrangements. For example,within the Governments proposed Contracts or Dierences or low-carbongeneration, a proportion o these could be targeted at supporting less maturerenewable technologies.

Illustrative 2030 scenario. We set out an illustrative scenario in whichcommitments on support or oshore wind and marine through the 2020s arebroadly in line with planned investment and supply chain capacity to 2020.Together with ongoing investment in onshore wind, this would result in a 2030

renewable generation share o around 40% (185 TWh). Sector decarbonisationwould then require a nuclear share o around 40% and a CCS share o 15%, alongwith up to 10% o generation rom unabated gas.

Key deployment barriers to be addressed include nance and planning:

Notwithstanding new market arrangements, there is a potentially importantrole or the Green Investment Bank (GIB) in nancing oshore wind projects.Unless it can be demonstrated that risks o a shortage o nance to 2015/16can be mitigated, allowing the GIB to borrow money rom its inception shouldbe seriously considered.

Planning approaches should acilitate investments in transmission thatare required to support investments in renewable and other low-carbongeneration. In addition, a planning approach which acilitates signicantonshore wind investment would reduce the costs o meeting the 2020renewable energy target, and o achieving power sector decarbonisationthrough the 2020s.


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Renewable heat

Indicative 2030 ambition.There is a set o low-carbon heat technologies thatare mature but that need to be demonstrated in a UK context. Given successuldemonstration, increasing the share o renewable heat rom currently very low levelsto around 35% o energy demand (210 TWh) by 2030 is likely to be both easible

and desirable. This will require consumer understanding and acceptance o thetechnologies, along with a willingness to accept the disruption and hassle costs ohouse retrot.

Developing renewable heat options.The approach over the next decade shouldocus on removing barriers and developing options that would allow signicantlyincreased ambition in the 2020s. To acilitate this, approaches to renewable heatand energy eciency (the Renewable Heat Incentive and Green Deal) should beintegrated. Success will also require accreditation o installers, alongside nancialsupport provided under the Renewable Heat Incentive. Firm targets should be setand unding commitments made or the period beyond 2020 as and when current

uncertainties are resolved (e.g. between 2015 and 2020).

Renewable transport

Electric vehicles. Signicant growth in the number o electric vehicles will increasethe share o renewable energy in transport, to the extent that batteries are chargedby renewable power generation. In our ourth budget scenario, electric vehiclepenetration reaches around 60% o new cars and vans by 2030. Although electricvehicles may still account or a considerably smaller share o total miles in 2030, thiswill increase signicantly in the 2030s as the vehicle stock turns over.

Biouels. It is currently inappropriate to plan or signicantly increased penetration

o biouels in surace transport beyond 2020, given concerns over sustainability(e.g. the tension between biouels and ood production, uncertainties about trueliecycle emissions and biodiversity risks) and competing claims on scarce bioenergysupplies rom other sectors (e.g. aviation, industry). Under a cautious assumptiono 11% (30 TWh) biouels penetration in 2030, the total renewable transport share including renewable electricity used in electric vehicles would be around 15%.



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1 The total does not exactly equal the sum o the parts due to accounting complexities (as set out in Chapter 5).

Renewable energy ambition

2030 possible contributions. Adding across our sectoral scenarios, the share orenewable energy penetration is 30% (460 TWh) in our central scenario 1. Higherlevels o ambition (e.g. up to 45%, 680 TWh) are technically easible and mightbe economically desirable, depending on the evolution o relative costs and thedevelopment o supply chains. Analysis o maximum easible levels suggests that:

Power generation. Renewable penetration o up to 65% (300 TWh) would betechnically easible. How much is economically desirable will depend on theevolution o the relative costs o renewables, nuclear and CCS.

Heat. Renewable penetration o up to 50% (275 TWh) might be technicallyeasible and desirable by 2030, depending on availability o bioenergy andability to rapidly develop supply chains and overcome other barriers.

Transport. With optimistic assumptions over the availability o sustainablebiouels, up to 25% (60 TWh) o transport energy demand could be met by

renewable energy in the orm o biouels. 2030 ambition.The precise level o appropriate ambition will become clear

over time. We recommend that the Government keeps ambition or renewableenergy under review and revisits this as uncertainties over the economics odierent low-carbon technologies are reduced (e.g. in 2017/18 when the rstnew nuclear plant and CCS demonstration plant are due).

2020 ambition. Renewable energy ambition to 2020 as set out in theGovernments Renewable Energy Strategy (RES) and as required under theEU Renewable Energy Directive (RED) would suciently develop options orincreased ambition in the 2020s.

Maintaining exibility.

The composition o 2020 ambition as set out in the RES is broadly appropriate.The current level o ambition or oshore wind (13 GW capacity installedby 2020) remains appropriate given uncertainties about the easibility oincreasing ambition on other lower-cost options (e.g. onshore wind).

I, however, increases in onshore wind (or other low-cost) ambition wereachievable and politically acceptable, a slight reduction in 2020 oshore windambition would reduce the costs o meeting the RED target.

Conversely, the 2020 ambition or oshore wind should not be increased,

unless there is clear evidence that costs have allen signicantly.



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1. Technical and economic analysis o renewableelectricity generationOur assessment o renewable electricity generation covers two areas:

i) Supporting renewable electricity generation as part o a portolio approach

ii) Enabling actors and policy implications

i) Supporting renewable electricity generation as parto a portolio approach

The technical and economic analysis in this review has identied a potentiallysignicant, but uncertain, contribution rom renewables to required power sectordecarbonisation (Table 1).

Power sector decarbonisation. Deep cuts in power sector emissions throughthe 2020s are easible, cost-eective and desirable. Analysis or our ourthbudget report suggested the need or 30-40 GW o low-carbon capacity in

the decade rom 2020, to replace ageing capacity and to drive down averageemissions intensity to around 50 gCO

2/kWh.

Diversity. Given current uncertainties over either the deployability or the costso nuclear and CCS (see below), there is a value in developing other options orpower sector decarbonisation. This suggests a potentially important role orrenewable generation technologies.

Resource.

There is abundant UK renewable resource, as regards wind, marine andsolar energy.

Nuclear generation is unlikely to be subject to a uel resource constraint or atleast ty years although this may become an issue in the longer term. In themedium term, availability o sites may become a binding constraint.

There is a long-term constraint on cost-eective CCS storage capacity. Thiscould limit medium-term deployment o CCS in power generation, given thelikely need or long-term use o CCS in energy-intensive industries.

Technical easibility. There is an issue about how the system copes withintermittent renewables (i.e. keeping the lights on when the wind doesnot blow). Our analysis suggests, however, that a high level o intermittentrenewable generation is technically easible, as long as options or providingsystem fexibility are ully deployed.

A range o options exist to address intermittency (demand-side response,interconnection, balancing generation) at a cost that is likely to be low relativeto the costs o generation even up to very high penetrations. For example,analysis that we present in Chapter 1 suggests that even or renewable sharesup to 65% in 2030 and 80% in 2050, the cost is only up to 1 p/kWh o additionalintermittent generation.



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Given the potential to deploy these options, an assessment o achievablebuild rates suggests that it would be technically easible to achieve renewablegeneration penetration o 65% in 2030.

Economics. It is likely that a wide range o low-carbon generation technologies(renewables and others) will be cheaper than ossil-red generation (Figure 1),

given a carbon price compatible with overall progress to a low-carbon economy(e.g. around 70 per tonne in 2030):

Nuclear appears likely to be the lowest-cost low-carbon technologywith signicant potential or increased deployment; it is likely to be cost-competitive with gas CCGT at a 30/tCO

2carbon price in 2020. As such, it

should play a major role in decarbonisation, provided that saety concerns areaddressed (Box 3).

The economics o CCS generation are likely to remain highly uncertain untilthis technology has been demonstrated at scale.

Onshore wind has a comparable cost to nuclear and is thereore also likely tobe cost-competitive with gas CCGT by 2020.

Most other renewable generation technologies currently appear relativelyexpensive and are likely to remain so until at least 2020, and in some casesconsiderably later.

By 2030, however, there are plausible scenarios where these other renewabletechnologies (e.g. oshore wind, marine, solar) have become cheaper thanossil-red generation at a carbon price o 70/tCO

2and to dierent extents

have become competitive or close to competitive with nuclear.

Our conclusions on cost are based on a 10% real discount rate or annualisingcapital costs. Whilst some emerging technologies may currently apply a higherdiscount rate, we consider 10% to be a suitable basis or longer-term costcomparisons in the power sector, with new market arrangements in placeand with wider deployment. Depending on the extent to which technologyuncertainties are resolved, and with a supportive policy environment, a lowerdiscount rate may be appropriate (e.g. 7.5%), in which case the low-carbonabatement options are even more attractive against conventional generation(Figure 2).

UK role in technology development. As set out in our 2010 innovation review,the UK should support those technologies where we have a comparative

advantage, and where we have the opportunity to be a leader internationally.These include oshore wind, or which the UK has a very avourable resourceand a developing industry, and marine, or which the UK is in the lead indeveloping and demonstrating the technology and has a large share o theworlds most promising sites.



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Figure1: Estimated cost ranges for low-carbon power technologies (2030)

Source: CCC calculations, based on Mott MacDonald (2011) Costs of low-carbon generation technologies.

Note(s): 2010 prices, using 10% discount rate, for a project starting construction in 2030. Unabated gas includes a carbon price. Excludes additional

system costs due to intermittency, e.g. back-up, interconnection. These ranges take into account capital cost and fuel/carbon price uncertainty, but

do not cover all possible eventualities (e.g. they assume that CCS is successfully demonstrated).

0

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Coal CCSGas CCSNuclearWaveTidal streamSolar PVOshorewind

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2030 (10% discount rate)Renewables

Other low-carbon

Unabated gas

Figure 2: Estimated cost ranges for low-carbon power technologies at 7.5% discount rate (2030)

Source: CCC calculations, based on Mott MacDonald (2011) Costs of low-carbon generation technologies.Note(s): As Figure 1, with 7.5% discount rate.

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Box 3: The Fukushima nuclear plant and implications or the UK

Events in Japan at the Fukushima Daiichi nuclear plant have raised the issueo nuclear power saety internationally. The UK has launched a review, whichwill deliver preliminary ndings in May. We note that whilst the specic

circumstances in Japan dier signicantly rom those or new nuclear in theUK, in principle this could aect the potential or nuclear power to contributeto decarbonisation in the UK (e.g. the National Policy Statement or nuclearhas been delayed to take account o the review, and any tightening o saetyrequirements may increase costs).

Nuclearsafetywasconsideredatlengthinthe2008WhitePaperonNuclearPower and associated consultation document. This concluded that the saetyrisks associated with new nuclear power in the UK are very small:

There have been no civil nuclear events with o-site consequences or whereall the saety barriers that are an inherent part o the design were breached

in the UK.

The consultation document cites analysis or the European Commissionsuggesting that the risk o a major accident the meltdown o the reactorscore along with ailure o the containment structure is o the order o one ina billion per reactor per year in the UK.

More broadly, the White Paper ound that the saety risk associated withnew nuclear in the UK is not comparable with older plant where accidentshave occurred overseas because regulatory scrutiny o reactor designs andoperations is ar more rigorous in the UK today.

ThoseconclusionsarelikelytoberobusttoeventsinJapan: Events in Japan were the result o an enormous earthquake and tsunami.

These aected back-up power and thereby compromised cooling o somereactors. Subsequently there has been overheating, exposure and radiationrelease rom spent uel ponds.

The likelihood o natural disasters o this type and scale occurring in theUK is extremely small.

Plant designs allowed under the UKs Generic Design Assessment havebeneted rom considerable technological improvement since the 1960sBoiling Water Reactors used at Fukushima, including the incorporation osecondary backup and passive cooling acilities.



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However,theCommitteehasnotundertakenadetailedreviewofallpossibleimplications or nuclear in the UK.

DECC has commissioned such a review rom the chie nuclear ocer, DrMike Weightman. This will report preliminary ndings in May, with a nal

report due in September 2011.

A ull review is required to ensure that any saety lessons are learnt and torestore public condence in the saety o nuclear power.

Should the review suggest limiting the role o nuclear generation in the UK inuture, then a higher renewables contribution would be required. Alternativelyi the review leads to a signicant tightening o saety regulations, nuclear costsmay be increased, which would improve the relative economics o renewabletechnologies and argue or potentially increasing their role.



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UK practical resource5

(i.e. potential to contribute to

long-term decarbonisation)

May be limited by availabilityo uel and storage sites.

Potentially large 18 to 200 TWh per year.

Limited around 40 TWhper year.

Large around 140 TWh peryear (on the basis o currenttechnology) with more possiblewith technology breakthroughs.

Limited around 40 TWh peryear (o which almost a halrom the Severn).

In theory could be very large.In practice may be limited bysites 8 currently approvedsites could provide over 20 GW(e.g. 175 TWh per year)6.

Around 80 TWh per year,depending on planning

constraints.

Very large over 400 TWhper year.

Other considerations

Dispatchable.

Exposed to ossil uel price risk.

Intermittency (with possiblebenets in wind-dominatedmix).




Mature technology,globally deployed.

Waste disposal andprolieration risks.

Public attitude andsaety concerns.

Intermittency.

Possible local resistance.

Lower visual impact(less local resistance).

Intermittency.

Conclusion: Future role in UK mix and strategic attitude to

technology development

Limited role or building new unabated gas (or coal) beyond2020, given rising carbon costs and availability o (lower-cost)low-carbon alternatives.

Future role currently highly uncertain given early stage otechnology development.

Likely to be valued in a diverse mix, given dierent riskscompared to nuclear and renewables and potential to operateat mid-merit, given lower capital intensity.

Currently at an early stage thereore will have a limited role inthe period to 2020. Important role or UK globally in developingthe option to 2030.

Given potentially large resource and scope or cost reduction,could play signicant role as part o a diverse mix in 2030 andbeyond.

Currently at an early stage thereore will have a limited role inthe period to 2020. Important role or UK globally in developingthe option to 2030.

Given scope or cost reduction, could play role as part o a diversemix in 2030 and beyond, but limited by practical resource.

Given current high costs and limited UK impact on global costs,role in the short term (i.e. to 2020) should be limited.

Option to buy in rom overseas later, and to have a major role inthe longer term (subject to signicant cost reductions).

Given limited opportunities to reduce costs with deployment,should not be pursued where sucient lower-cost optionsare available. Should be triggered as an option i relative costsimprove or i there are tight constraints on roll-out o lower-costtechnologies (e.g. wind, nuclear).

Given maturity and relatively low cost, likely to play a major roleat least to 2050.

Potential constraints and wider risks/considerations suggestit would not be prudent to plan or a low-carbon mix entirelydominated by nuclear.

Relatively low cost, thereore likely to play a signicant role,within the constraints o suitable sites.

Large amounts o other technologies will also be required, givenlimited site availability.

Promising long-term option, given large resource andpotential or cost reductions.

Given potential UK impact on global costs, warrants somesupport to 2030 to develop the option.

5 See Chapter 1, section 2. Numbers here are considered practical resource, i.e. taking into account environmental and proximity constraints.6 175 TWh per year in 2030 would require 22 GW, including all current developer plans or 7 sites (18 GW), existing plant expected still to be in operation (1.2 GW) and 2

more reactors (3.2 GW) at the remaining site, or additional at the other 7 sites.


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The implication o our technical and economic analysis is that energy andtechnology policy approaches should promote competition between the moremature low-carbon technologies, while providing support or technologies thatare currently more expensive but with a potentially important long-term role.Support is required or technologies at the early deployment phase (e.g. oshore

wind) and those at the demonstration phase (e.g. marine). This raises questionsabout whether it is appropriate to commit now to a specic level o ambition orthese technologies in 2030 and i so what the level should be.

Committing now to technology support in the 2020s

The likely scale o investment in the less mature renewable technologies (e.g.oshore wind, marine) during the 2020s is very uncertain. This refects theircurrently high costs, and the lack o policy commitment to providing support ornew investments beyond 2020.

This uncertainty would be resolved by committing now to a minimum level o

deployment or support in the 2020s, thereore underpinning required supplychain investment over the next decade.

A decision on whether to go beyond a minimum commitment, including adecision on the possible contribution rom a Severn barrage project, could betaken when better inormation is available on relative costs and any barriers todeployment (e.g. in 2017/18, when there will be more condence about costs andperormance o oshore wind, marine, nuclear and CCS).

The minimum commitment should also hold only i supply chain investmentenvisaged to 2020 is delivered in practice.

In order to provide investor condence, technology support should be providedthrough rm commitments, to be implemented through new electricity marketarrangements (see section 1(ii) below).

An illustrative scenario or technology support

In determining the appropriate level o any such commitment the relevant actorsare the level o supply chain investment required, the degree o commitmentrequired to support this investment, and the need to keep the impact onelectricity bills at an acceptable level.

We set out a range o scenarios in this report (Figure 3), o which the 40%(185 TWh) renewable penetration scenario currently appears likely to be the mostappropriate. This scenario includes:

Oshore wind.There is investment in oshore wind through the 2020s atlevels consistent with planned investment levels to 2020 (as set out in theGovernments Renewable Energy Strategy).

Marine. Tidal stream and wave investments proceed in line with rates plannedor 2020.



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7 Renewable Obligation Certicates (ROCs) are tradable certicates that electricity suppliers buy rom developers o renewablegeneration projects.

Oshore wind ambition to 2020

In our September 2010 letter to the Secretary o State or Energy and ClimateChange, we suggested that the ambition to 2020 or oshore wind was broadlyappropriate.

In this report, we have returned to the question o 2020 ambition, and consideredwhether this could be reduced whilst still providing required technology supportto 2030.

The context or this is the electricity price impact o oshore wind ambition,which involves a cost penalty roughly double that o onshore wind generation (asrefected in the current subsidy payment or oshore wind o 2 ROCs7 per MWh,compared to 1 ROC or onshore wind).

Given the very aggressive pace o investment to 2020 under the Governmentsplans, ideally this would be smoothed in the context o a 2030 commitment(i.e. by reducing ambition to 2020 to reduce costs, whilst committing to urther

investment in the 2020s given the long-term importance o oshore wind).One way to achieve this whilst still meeting the UKs renewable energy targetunder the EU Renewable Energy Directive would be to increase ambition oronshore wind. This would require that society (and specic communities) acceptgreater landscape impact in return or slightly reduced electricity bills.

There may also be scope to increase ambition or other options to meet therenewable energy target, including renewable heat, imported renewable energyor renewable energy credits.

Thereore, i evidence emerges that other, lower-cost, options can be delivered athigher levels than currently envisaged, the oshore wind ambition or 2020 couldbe slightly reduced, even while stretching ambitions or 2030 are maintained.

The level o 2020 oshore wind ambition should not be increased unless there isclear evidence o signicant cost reduction. Increasing ambition would adverselyimpact consumers without any clear osetting benets in terms o technologyinnovation.

ii) Enabling actors and policy implications

Amongst the key enabling actors to deliver 2020 ambition that we consider in thereview are the Electricity Market Reorm, the role or a Green Investment Bank innancing oshore wind investment, and the planning ramework.

The Electricity Market Reorm

We have previously highlighted the risks to investment in low-carbongeneration under current electricity market arrangements, and the need or newarrangements based on long-term contracts to ensure that investments are madeat least cost to the consumer. The Government recently made proposals consistentwith this recommendation.



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Ideally these arrangements would be technology-neutral, with the range o low-carbon technologies bidding against each other or contracts. However, in practicethis would result in investment ocused on mature technologies, and not in thosecurrently more expensive technologies that have a potentially important longer-term role.

Thereore, given our conclusion above that a portolio o low-carbon technologiesis desirable, the new market arrangements should be designed to provideadditional support or those promising technologies at an earlier stage odevelopment.

For example, the minimum commitments recommended above could beimplemented through reserving some o the available contracts or less maturerenewable technologies. This would have to refect dierent costs across thetechnologies and be subject to certain conditions (e.g. a declining reserve price incontract auctions) in order to ensure cost reductions and a alling electricity pricepenalty or consumers.

More mature renewable technologies (i.e. onshore wind and hydro) would thencompete with other mature low-carbon technologies (i.e. nuclear) or contracts.This would provide a least-cost investment programme or sector decarbonisation,and could also refect considerations around diversity o the generation mix (e.g. itmay be appropriate to pay more or technologies that diversiy the mix and reducesecurity o supply risk).

The expectation is that the less mature technologies that would at rst needsupport (e.g. oshore wind, marine and CCS) would ultimately also be able tocompete or contracts without additional support.

Transitioning rom current support arrangementsThere is an important issue o the transition rom current arrangements (theRenewables Obligation) to new arrangements, with the risk that the changecauses an investment hiatus. To mitigate this risk, existing arrangements need tobe eectively grandathered and available until new arrangements are clear. Thiscould require extending the RO beyond the date (2017) proposed in the ElectricityMarket Reorm consultation.

The Green Investment Bank

Even i greater revenue security is provided through new electricity market

arrangements, there will still be signicant uncertainties around cost andperormance o oshore wind. Thereore new electricity arrangements may notully address current concerns over availability o equity and debt nance orrequired investments.

I nance is constrained, there is a potentially valuable role or a Green InvestmentBank (GIB), both in terms o providing comort to investors and providing anadditional pool o capital or risk sharing.



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The GIB could best ull this purpose i it is indeed a bank, rather than a und, asannounced in the March 2011 Budget.

However, as currently proposed, the GIB would only be able to borrow moneyrom 2015/16. This is potentially problematic given that a crucial window oopportunity or the GIB is precisely the period beore 2015/16 as new electricity

market arrangements will still be uncertain and there will be ew proven exampleso oshore wind projects in successul operation. Around 20 billion o investmentnance is needed or oshore wind alone in this period, when risks are at theirhighest.

Thereore, unless it can be demonstrated that risks can be mitigated, allowing theGIB to borrow money rom its inception should be seriously considered.

The planning ramework or onshore wind and transmission

Planning approval rates or onshore wind projects have historically been low(e.g. less than 50%), and the period or approval long (e.g. almost two years). This

refects an implicit social preerence or investment in more expensive renewabletechnologies, given concerns (held by some but not all people) about the visualimpact o onshore wind developments.

However, urther approvals will be required in order to deliver the onshore windambition in the Governments Renewable Energy Strategy.

Additional approvals beyond this level oer scope or reducing the cost omeeting the 2020 renewable energy target and the cost o power sectordecarbonisation through the 2020s (e.g. our analysis suggests scope to add over6 GW o onshore wind capacity through the 2020s).

In addition, planning approval will be required or transmission investments tosupport increased renewable generation and sector decarbonisation.

International experience suggests that approaches which achieve communitybuy-in to onshore wind projects through sharing nancial benets have helpedsupport high levels o investment; it is appropriate that such approaches will betested in the UK.

However, even with such approaches, there is a signicant risk that onshore windand transmission investments will not gain local public support, given high levelso resistance rom some groups.

Achieving higher rates o approval or onshore wind projects and or requiredinvestments in the transmission network is thereore likely to require centralgovernment decisions in line with national priorities as dened by carbonbudgets, possibly under new planning legislation that explicitly sets this out.



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2. Delivering renewable heat ambition to 2020 and beyondWe summarise our analysis o renewable heat in two sections:

i) Renewable heat scenarios to 2030

ii) Implied 2020 ambition, barriers and responses

i) Renewable heat scenarios to 2030

We set out detailed analysis o options or renewable heat investment andscenarios to 2030 as part o our advice on the ourth carbon budget.

We considered the ull range o renewable heat options (Box 4). We showed thatthese could be competitive given potential or cost reductions and a carbon pricerising to 70/tCO

2by 2030 (Figure 4).

Box 4: Renewable heat technologies

Renewable heat technologies in our ourth budget scenario included heatpumps, biomass and biogas (Figure B4).

Heat pumps (air-source and ground-source):

Heat pumps use electricity to extract heat rom the surroundingenvironment (e.g. the ground or air) and transmit this or space and hotwater heating. One unit o electricity rom heat pumps can generatebetween 2.5 and 4.5 units o heat, with the extra heat generated classedas renewable.

Energy eciency improvement is a necessary condition or eective

deployment o electric heat pumps. Otherwise heat pumps and theassociated radiator system need to be signicantly larger (and moreexpensive), and in extreme cases would not be able to provide adequatelevels o warmth.

While there is currently limited deployment o heat pumps in the UK, theseare a relatively mature technology and are widely used in other countries(e.g. France, Sweden). Widespread roll-out in the UK requires buy-in romhouseholders and businesses, which will need eective policy to overcomeexisting and perceived barriers.

Biomass: There is a range o potential uses o biomass to produce heat,including biomass boilers in residential and non-residential buildings, CHPor community and larger-scale district heating and process heat or industry.The key issues are the level o sustainable biomass that is available and wherethis is best used.

Biogas: Biogas can be used to produce high-grade heat and can thereorebe used as a substitute or ossil uels in residential, non-residential andindustrial sectors.



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Figure B4: Fourth budget Medium abatement scenario: heat technologies (2030)

Non-renewable

Solar thermal

Biomass

Ground-source heat pumps

Air-source heat pumps

District heating

Biogas

Source:CCC modelling.

Note(s): Figure includes all heat demand from buildings and industry.

Total heat demand = 605 T Wh

Renewables = 210 TWh

Non-renewables = 395 TWh

-200

-150

-100

-50

0

50

100

150

GSHPstorage

GSHPBiomassboilers

BiogasASHPAir to

water storage

ASHPAir towater

ASHPAir to air

Figure 4. Abatement costs of low-carbon heat technologies (2030)

Source: CCC modelling; NERA (2010).

Note(s): Cost ranges reect dierent demand segments (e.g. the highest cost ground-source heat pumps with storage are in new build

detached properties replacing gas). All costs are calculated based on central fossil fuel price projections and do not include a carbon price.ASHP = Air-source heat pump, GSHP = Ground-source heat pump.

/tCO

2

Maximum

Average

Minimum



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We proposed a central scenario or renewable heat penetration reaching around35% (210 TWh) in 2030, with renewable heat as one o the main contributors toeconomy-wide emissions reduction required through the 2020s.

In designing appropriate policies to support development o renewable heatoptions, our considerations are important:

Renewableheattechnologiesarerelativelymature,andarealreadywidelydeployed in some countries.

Investmentcyclesforrenewableheatareshortcomparedtothoseforrenewablepower generation, implying scope or later decisions on commitments totechnology support in the 2020s.

ThechallengeistodemonstratethetechnologiesinaUKcontext,addressingcurrent technical, economic and social barriers.

Successhereisofcrucialimportance,bothbecauserenewableheattechnologiesare promising rom technical and economic perspectives, and because o a lack

o alternatives or heat decarbonisation, which is required to meet the UKs 2050target o an 80% emissions reduction.

We discuss policies to support UK demonstration in the next section, where one oour conclusions is that there will be a need or commitments on nancial supportor renewable heat in the 2020s, which in turn will require setting o renewableheat targets. Our central scenario shows the order o magnitude o ambition thatcurrently appears appropriate, with the precise ambition to be determined ascurrent uncertainties are resolved (e.g. between 2015 and 2020).

ii) Implied 2020 ambition, barriers and responses

The level o ambition or 2020

Our 2030 scenarios require signicant deployment o renewable heat over thenext decade. This will support technology development, build up a supply chain,and improve consumer condence in technologies where there has been verylimited deployment to date in the UK.

Specically, our 2030 scenarios build in renewable heat penetration o around12% (70 TWh) in 2020. This will be sucient in terms o providing critical massor required deployment in the 2020s, and is consistent with the Governmentsrenewable heat ambition in its Renewable Energy Strategy.

Barriers and responses to achieving ambition

In this report, we present new analysis o barriers to renewable heat deploymentto 2020, both nancial and non-nancial. This analysis suggests that keydeployment barriers are likely to include lack o nancial support, supply chainconstraints, and lack o consumer inormation and condence (Figure 5).



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Integration o renewable heat and energy efciency policies.Separate mechanisms or promoting renewable heat and energy eciencyrisk complicating the delivery landscape and conusing consumers. The RHI andGreen Deal should thereore be integrated. Integration would help to increasethe number o suitable buildings, improve consumer condence,

and inormation, and provide a possible source o nancing or up-rontinvestment costs.

Suitability. Given that renewable heat technologies work better in well-insulated houses, linking renewable heat and energy eciency policies wouldincrease the number o suitable houses. This could be achieved by requiring aminimum energy eciency rating to qualiy or payment under the RHI, andthrough marketing renewable heat as part o the Green Deal (e.g. by includingrenewable heat technologies in energy audits and ollow ups).

Consumer condence. Marketing renewable heat as part o the GreenDeal would enhance consumer condence, both because it would ensure

deployment in suitable buildings, and because it would oer an opportunityto provide customers with better inormation. It would also allow reduction otransaction costs i implementation o energy eciency and renewable heatmeasures were to orm part o a whole-house or one-stop-shop approach.

Financing up-ront costs.These are potentially signicant (e.g. around6,000 to 10,000 or an air-source heat pump in the residential sector) andprohibitive or some applications. Financing constraints could be addressedby integration allowing nancing under the Green Deal or renewable heatinvestment.

Zero-carbon homes. Renewable heat deployment in new homes does not ace

as many barriers as retrot to existing homes. This highlights the opportunityoered by new homes and importance o dening zero-carbon homes in such away as to promote renewable heat.

It will be important that both nancial and non-nancial barriers are addressedby the RHI and other policies in order that signicantly increased investment inrenewable heat occurs over the next decade. This is required, in turn, or longer-termheat decarbonisation in the context o the 2050 economy-wide emissions target.



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In our ourth budget advice, we set out scenarios or biouels penetration throughthe 2020s:

OurLowandMediumabatementscenariosincludenoincreaseinpenetrationthrough the 2020s rom levels consistent with the Gallagher Reviewrecommendations in 2020 (30 TWh, equivalent to around 11% penetration in

liquid uels by 2030, given alling liquid uel use). Together with the contributionrom renewable power used in electric vehicles the total renewable energy sharein transport would be around 15% in 2030.

OurHighscenarioincludesincreasedpenetrationthroughthe2020sinlinewiththe IEAs BLUE Map scenario (60 TWh, equivalent to around 25% penetration inliquid uels by 2030).

We are currently undertaking a bioenergy review which will:

Developscenariosforavailabilityofsustainablebioenergybasedonanalysiso global land, population growth, diet change, and scope or agricultural

productivity improvement. Considerwhereavailablesustainablebioenergywouldbestbeused(i.e.

between power, surace transport, buildings, industry, aviation, shipping) givenalternative abatement options available.

We will publish the bioenergy review beore the end o 2011.


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Scenarios to 2030

Our power, heat and transport scenarios or 2030 imply a renewable energy shareo up to 45% (680 TWh) in 2030.

Our illustrative scenario or power alongside our central scenarios or heat and

transport in 2030 are consistent with a 30% (460 TWh) economy-wide renewableenergy share (Figure 6), with the possibility o going urther as uncertaintiesare resolved (e.g. over the relative cost o renewable power generation, ordeployability o renewable heat).

Figure 6: Renewable shares in energy consumption (2009, 2020 and 2030)

Source: CCC calculations.

Note(s):Total energy consumption is gross nal consumption calculated on the basis as set out in the EU Directive. Energy consumption shown in theheating sector is taken from the CCC heat model and is calculated on a slightly dierent basis. Electricity use is shown both in the sectors within which

it is consumed and in the electricity sector; it is only counted once in total consumption. Includes autogeneration and generator own use. 2030 gures

are for our illustrative central scenarios. Demand assumptions are taken from our four th budget analysis, based on CCC's bottom-up modelling and

energy projections from the DECC energy model using central assumptions for population growth from ONS and GDP growth from the Oce of Budget

Responsibility.

TWh

0

200

400

600

800

1000

1200

1400

1600

1800 Non-renewable

Renewable

203020202009203020202009203020202009203020202009Heating and cooling Electricity Transport Total energy

consumption

The costs associated with delivering this level o ambition are o the order o under1% o GDP in 2030 compared to a scenario where there are no carbon constraints.

The 2030 energy bill impacts over and above those to 2020 are limited:

Electricity.

An increasing proportion o electricity will be paid or under long-termcontracts at prices below those o unabated gas with a 30/tCO2

carbon pricein 2020.

Whilst unabated ossil-red generation will become more expensive with anincreasing carbon price in the 2020s, this will account or a declining share ototal generation (e.g. providing less than 10% o generation in 2030).

Whilst there will be some ongoing investment in more expensive oshorewind and marine, this will be limited unless there have been signicantcost reductions.


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Chapter 1

Renewable electricitygeneration scenarios1. Sector context: the need or early

decarbonisation o the powersystem and uture expansion

2. Scope or renewable generation:resource potential and technicalconstraints

3. Renewable and other electricitygeneration costs

4. Renewable generation scenariosrom 2020

5. Recommendations on ambitionor renewable generation


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Introduction and key messagesIn our advice on the ourth carbon budget (2023-2027), we set out a path ordecarbonisation o the power sector. Specically, we suggested that the aimshould be to reduce average emissions rom current levels o 500 gCO

2/kWh

to around 50 gCO2/kWh by 2030. This refected our assessment o the optimal

investment strategy based on consideration o capital stock turnover, technologycosts, projected carbon prices and demand growth.

Our ourth budget advice noted the need to plan or power sectordecarbonisation based on a range o technologies including renewable, nuclearand carbon capture and storage (CCS) generation. However, we did not considerin any detail the appropriate balance o investment between the varioustechnologies.

In this chapter we take the power sector decarbonisation path underpinning therecommended ourth carbon budget as a given, and consider possible roles orrenewables within this:

Westartbyconsideringthescopefordeploymentofrenewableandotherlow-carbon technologies, including resource constraints, any limits on renewablespenetration associated with intermittency, and build constraints.

Wethenconsidertheeconomicsofrenewablesrelativetoothergenerationtechnologies, both as regards current and uture costs, and allowing or learningthrough innovation.

Giventhesetechnicalandeconomicassessments,weconsidertheroleforrenewables within a portolio approach to power sector decarbonisation andset out a range o scenarios or renewable generation to 2030 and beyond. Ourscenarios refect dierent assumptions on renewable costs relative to thoseor other low-carbon generation technologies, and limits on deployability orenewable and other low-carbon technologies.

The key messages in the chapter are:

The need or sector decarbonisation. It is crucial in the context o economy-wide decarbonisation that the power sector is almost ully decarbonised by2030. Options or sector decarbonisation include nuclear, CCS and renewablegeneration.

Current uncertainties. The appropriate mix o low-carbon generationtechnologies or the 2020s and 2030s is highly uncertain. Key actors are:

the ability to build nuclear to time and cost; whether CCS can be successullydemonstrated at scale or coal and gas; the extent to which the planningramework will support urther investment in onshore wind generation; andthe costs o renewable generation, especially oshore wind and marine (wave,tidal stream).

Nuclear power currently appears to be the most cost-eective o the low-carbon technologies, and should orm part o the mix assuming saetyconcerns can be addressed. However, ull reliance on nuclear would beinappropriate, given uncertainties over costs, site availability, long-term uelsupply and waste disposal, and public acceptability.


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We set out the analysis that underpins these messages in ve sections:

1. Sector context: the need or early decarbonisation o the power system anduture expansion

2. Scope or renewable generation: resource potential and technical constraints

3. Renewable and other electricity generation costs4. Renewable generation scenarios rom 2020

5. Recommendations on ambition or renewable generation


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Box 1.4: Potential or imported solar (and other) power to contribute to UK electricity supply

Technology characteristics o solar CSP

Concentrated Solar Power (CSP) generates electricity by using an array o

mirrors to ocus the suns rays onto a small area (e.g. the top o a tower) toproduce high temperatures that are then used to drive a steam turbine.

Solar technologies tend to generate most in the middle o the day and in thesummer, rather than at times o UK peak electricity demand, in early eveningand in the winter. However, CSP plants could generate and store heat inmolten salts during the day and then release this at times o peak demand(e.g. extending generation into the early evening peak), adding an element ofexibility to their generation proles.

Available solar CSP resource

The scale o the solar resource in theory CSP could meet all o Europeselectricity demand in 2050 using around 4% o the Sahara desert (360,000 km2) means that it is likely to play an important role in decarbonising European andglobal electricity supplies, especially in the longer term.

However, CSP is not suitable or generation within the UK, as it requires intensesunshine and little cloud cover to be economic. I sited in southern Europe ornorthern Arica, it could potentially make a signicant contribution to the supplyo renewable electricity or the UK, via interconnectors and the European grid.

Potential or imported renewables to contribute to UK power supply by 2020

Although CSP is a relatively immature technology, it could start to generate

energy on a multi-gigawatt scale in the second hal o the 2010s. Whether it cancontribute to the UKs renewable energy target or 2020 depends on whetherArticle 9 o the EU Renewable Energy Directive, which enables power importedrom outside the EU to contribute towards the target, is incorporated into UKlegislation and on whether electricity market reorm provides incentives orsuch imports.

The UK may also be able to access imports o other renewable technologiesthrough interconnection and imports Icelandic geothermal, Scandinavianhydro and biomass resources rom around the world.

Chapter 1 51


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14 DTI (2007) The Role o Nuclear Power in a Low Carbon Economy: Consultation Document.

Box 1.5: Japan: The Fukushima nuclear plant and implications or the UK

Events in Japan at the Fukushima Daiichi nuclear plant have raised the issueo nuclear power saety internationally. The UK has launched a review, whichwill deliver preliminary ndings in May. We note that whilst the speciccircumstances in Japan dier signicantly rom those or new nuclear in theUK, in principle this could aect the potential or nuclear power to contributeto decarbonisation in the UK (e.g. the National Policy Statement or nuclearhas been delayed to take account o the review, and any tightening o saetyrequirements may increase costs).

Nuclearsafetywasconsideredatlengthinthe2008WhitePaperonNuclearPower and associated consultation document14, which concluded that thesaety risks associated with new nuclear power in the UK are very small:

There have been no civil nuclear events with o-site consequences or where

all the saety barriers that are an inherent part o the design were breachedin the UK.

The consultation document cites analysis or the European Commissionsuggesting that the risk o a major accident the meltdown o the reactorscore along with ailure o the containment structure is o the order o one ina billion per nuclear reactor, per year in the UK.

More broadly, the White Paper ound that the saety risk associated withnew nuclear in the UK is not comparable with older plant where accidentshave occurred overseas because regulatory scrutiny o reactor designs andoperations is ar more rigorous in the UK today.

ThoseconclusionsarelikelytoberobusttoeventsinJapan:

Events in Japan were the result o an enormous earthquake and tsunami.These aected back-up power and thereby compromised cooling o somereactors. Subsequently there has been overheating, exposure and radiationrelease rom spent uel ponds.

The likelihood o natural disasters o this type and scale occurring in the UKis extremely small.

Plant designs allowed under the UKs Generic Design Assessment havebeneted rom considerable technological improvement since the 1960s

Boiling Water Reactors used at Fukushima, including the incorporation osecondary back-up and passive cooling acilities.

However,theCommitteehasnotundertakenadetailedreviewofallpossibleimplications or nuclear in the UK.

DECC has commissioned such a review rom the chie nuclear ocer, DrMike Weightman. This will report preliminary ndings in May, with a nalreport due in September 2011.


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20 Pyry (2010) Options or low-carbon power sector exibility to 2050.

Box 1.7: Evidence on supporting high levels o intermittent renewables in the electricity system

Pyry modelling or the CCC

Pyrys wholesale electricity model simulates the dispatch o each unit on the

system or each hour o every day. The model accounts or minimum stablegeneration and minimum on and o times, which allows a realistic operationalsimulation o dierent plant.

Our new analysis builds on work we commissioned rom Pyry or our ourthbudget report20. That work emphasised the importance o increased fexibilityin any decarbonised system (i.e. even without an increase in renewables shareater 2020); almost all fexibility options reduced CO

2emissions and generation

costs.

The new analysis tests the ability o the system to accommodate much higherlevels o intermittent renewable generation. This work shows that, technically,

the system can accommodate high levels o renewables (e.g. up to 80% in 2050 Table B1.7). Both interconnection and active demand-side managementwere ound to be very important at high penetrations, along with back-upcapacity that may not be able to earn sucient returns in the wholesaleelectricity market.

Table B1.7: Modelled scenarios or intermittent renewables: deployment o fexibilityoptions and impact on security o supply and emissions (2030, 2050)

Scenario High Very High High Very High

Renewable share ~ 50% ~ 65% 60% 80%

Flexible demand ~ 15% ~ 15% ~ 33% ~ 33%

Interconnection 16 GW 16 GW 24 GW 24 GW

Bulk storage 4 GW 4 GW 4 GW 4 GW

Security o supply (expected 2 GWh 2 GWh 4 GWh 4 GWhenergy unserved) (max) (max) (max) (max)

Emissions intensity 50g 50g Close to Close toCO

2 /kWh CO

2 /kWh zero zero

2030 2050

Chapter 1 57


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Transmission costs. More generation capacity is required on a system with highlevels o intermittent renewables (refecting low load actors) and renewablesites will tend to be selected based on available resource rather than proximityto demand centres. This may imply the need or more transmission capacity,with potentially signicant associated costs at higher levels o renewables

penetration. These costs can be reduced where intermittent generation cost-eectively shares transmission capacity, or where generation sources areclose to major demand loads (e.g. some o the Round 3 oshore wind sites willconnect to the grid in the south/east o England).

Thereore, the cost implications o intermittency are unlikely to be prohibitiveuntil very high levels are reached. For example, even or renewables shares up to65% in 2030 and 80% in 2050, Pyrys analysis suggests that the cost associatedwith intermittency is only up to around 1p per kWh o additional intermittentrenewable generation.

(iii) Build constraints through the 2020s

In the longer term build constraints may not be a limiting actor, given scope orsignicant supply chain expansion with sucient lead time. However these couldbe binding in the medium term (e.g. the technology mix in the 2020s may beinfuenced by build constraints).

In order to better understand this potential impact, we commissioned technicalanalysis rom Pyry to identiy potential supply chain constraints or each o thelow-carbon technologies.

The Pyry analysis suggests that there are likely to be limits on scope orinvestment in each technology, and implies that a mix o renewables and other

low-carbon technologies is likely to be required through the 2020s in order thatthe power sector is largely decarbonised by 2030.

Renewables. Scope or adding renewable capacity in the early 2020s is limitedby site availability and the level o ambition to 2020. Pyrys analysis suggeststhat signicant ramp up through the second hal o the 2020s will be easible:

Onshore wind. Potential to increase onshore wind capacity during the 2020swill depend on the availability o suitable sites with planning approval, and onthe scope or repowering existing sites with larger turbines. Pyrys analysissuggests up to 5 GW o additional capacity could easibly be added during the2020s, some o this through repowering, with scope or urther investment i

planning constraints can be addressed. Oshore wind. We envisage additions o oshore wind capacity going into

the 2020s o around 1.7 GW each year. Analysis rom Pyry suggests that thiscould in principle be ramped up signicantly in the early 2020s (e.g. to achieveannual average investment through the 2020s o 3.4 GW), although insection 3 we question whether this would be desirable given the risk ocontinuing high costs.


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A related point is that gas CCS could be particularly attractive or mid-meritgeneration, given its relatively low capital intensity (Figures 1.5 and 1.8).

Technology maturity. Given the dierent stages o technology maturity, wewould expect costs o renewable and other technologies to all at dierent ratesover time as a result o learning, although the extent o this is highly uncertain

(see below or a discussion o the potential or costs to all in uture and relateduncertainties).

The high degree o uncertainty is refected in DECCs estimates o costs or thevarious power generation technologies. For some technologies these more thandoubled in real terms between 2006 and 2010, mainly refecting higher thanexpected costs or technologies deployed in intervening years, in turn largelyrefecting exchange rate movements and supply chain constraints (Figure 1.9).

Figure 1.5: Share of capital costs in long-run marginal costs

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100% Cost excludingcapital cost

GasCCGT

GasCCS

CoalCCS

NuclearOshorewind

Onshorewind

Wave(xed)

Tidalstream

Tidalbarrage

SolarPV

Source: CCC calculations, based on Mott MacDonald (2011) Costs of low-carbon generation technologies.

Note(s): Based on projects starting in 2011, using 10% discount rate and central scenario for capital costs and fuel p rices. Non-renewable plants

operating at baseload (i.e. a load factor of 90%); the proportion of capital costs would be higher for operation at mid-merit (e.g. 50%).

Capital cost category excludes the costs of CO2

transportation and storage, which are around 3% for gas CCS and 6% for coal CCS.

Capital cost

Chapter 1 63


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Figure 1.9: Government estimates of generation costs, estimated in 2006 and 2010for projects starting immediately

0

2

4

6

8

10

12

14

16

18

2010 MottMacDonald

2006 EnergyReview

Unabatedcoal

GasCCS

CoalCCS

Oshorewind

Onshorewind

Gas CCGTNuclear

Source: CCC calculations, based on DTI (2006) The Energy Challenge, Mott MacDonald (2010) UK Electricity Generation Cost Update.

Note(s): 2010 prices, all technologies on nth-of-a-kind basis, no carbon pr ice included. Fuel prices are as for Energy Review 2006 in both cases.

Coal costs present average of range from pulverised fuel to IGCC. Project start date for Mott McDonald (2010) is 2009, for DTI (2006) it is 2006.

Levelisedcostofgeneration(p

/kWh)

Estimating uture generation costs

Given these signicant uncertainties, we have developed a range o uture costestimates corresponding to varying assumptions on key cost drivers, using amodel built or us by Mott MacDonald (Box 1.10).

Box 1.10: CCC model or calculating levelised costs or power generation technologies

We commissioned Mott MacDonald to conduct an in-depth assessment o thecapital cost o low-carbon technologies. Capital costs are typically the largestcomponent o costs or low-carbon technologies (excluding CCS). Drawing ondata rom recent projects where possible, Mott MacDonald broke down capitalcost (capex) into relevant sub-components to provide an estimate o currentand uture capital costs.

Across technologies Mott MacDonald ound three key themes:

Thereisconsiderableuncertainty over capital costs, in particular or early-

stage technologies (CCS, marine). Technology perormance and cost varies ona project-by-project basis. These actors make estimates o current and uturecosts hugely uncertain, and inevitably based on judgement.

Market congestion drives a wedge between quoted prices and underlyingcosts, caused by an imbalance o supply and demand. This premium can be othe order o 15-20% or some technologies (e.g. oshore wind, nuclear), andmay be eroded with new entrants.

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28 Nameplate capacity reers to generating capacity at peak output, in contrast to baseload-equivalent capacity, which adjusts or average load actors.

4. Renewable generation scenarios rom 2020Our scenarios or renewable electricity generation refect the range o possiblecosts and the value o having a diverse mix. High penetration scenarioscorrespond to relatively low renewable generation costs or limits on deployability

o other low-carbon technologies, and low penetration scenarios correspondto relatively high renewable generation costs with low-carbon alternatives ullydeployable.

We develop the scenarios in our steps:

Werstrecapourassessmentofambitionintheperiodto2020.

Wethensetoutfourscenariosforrenewablegenerationdeploymentintheperiod 2020 to 2030, each o which is consistent with achieving a largelydecarbonised power sector by 2030.

Webrieyconsidertheoutlookfortheshareofrenewablegenerationto2050.

Wecalculatecostsandinvestmentrequirements.

Renewable electricity generation in the period to 2020

The starting point or our renewable generation scenarios is the Governmentsambition to 2020 set out in the Renewable Energy Strategy, which is in line withour ramework o progress indicators (and which remains appropriate given ourassessment in Chapter 2). We developed this scenario based on an assessmento what is easible and desirable in the period to 2020, and it is characterisedas ollows:

Thescenarioincludesatotalof28GWwindcapacity(split13GWoshore

and 15 GW onshore) and just over 10 GW o non-wind renewables (all on anameplate basis28), alongside our CCS demonstration plants by 2020 (1.7 GW),with two new nuclear plants by 2020 (around 3 GW in total).

Thiswouldresultinatotalofaround45GW(approximately25GWbaseload-equivalent when intermittent renewables are adjusted or their lower annualavailability) o low-carbon plant on the system in 2020 ater allowing or closureo existing nuclear plant in the 2010s.

Emissionsreductionofaround30%in2020wouldensuerelativeto2009(110 MtCO

2). This would be due to both a all in average emissions rom around

490 gCO2/kWh in 2009 to around 300 gCO

2/kWh in 2020, as well as eciency-

driven demand reductions osetting underlying demand growth.Although there are currently delivery risks associated with this scenario orexample, as regards planning approval or projects, nancing, supply chainexpansion, see Chapter 2 we assume that these risks are addressed and thatwe enter the 2020s with around 38 GW o renewable capacity on the systemaccounting or around 30% o total demand (120 TWh in total).


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29 Includes losses, excludes generator own use (around 5%) and autogeneration. Overall totals are rounded to the nearest 5 TWh.

Scenarios or investment in renewables rom 2020

In setting out possible paths or renewable generation through the 2020s, wedene our scenarios with increasing levels o renewables penetration andcontribution to required sector decarbonisation (Figure 1.12):29

Figure 1.12: Range of renewable electricity penetration scenarios to 2030

Generation(TWh)

0

50

100

150

200

250

300

350

400

450

500 Other unabated fossil-redgeneration

Net imports

Gas CCGT

CCS (coal and gas)

Nuclear

Other renewables

Marine

Onshore wind

Oshore wind

2030 - 65%renewables




2020

Source: CCC calculations, based on modelling by Pyry Management Consulting.

Note(s): All 2030 scenarios achieve a comparable level of emissions intensity (around 50 g/kWh) and security of supply.

Includes losses, excludes generator own-use and autogeneration. Other renewables include hydro, biomass (including anaerobic digestion),

geothermal and solar P V.

140TWh(30%)penetrationby2030.

This is the indicative scenario used in our ourth budget cost calculations andassumes that renewables are added more slowly ater 2020 than beore.

It refects a world where no urther progress is possible in onshore windbeyond 2020 (e.g. due to planning restrictions), and where newer technologies(marine, solar and geothermal) are not deployed in the 2020s. Oshore wind isdeployed at a slower rate than through the 2010s, reaching just under 20 GWin total by 2030.

Sector decarbonisation is thereore achieved largely through a combination oCCS and nuclear, requiring that deployability constraints or these technologies

are not binding.

Given increasing demand or electricity rom the heat and transport sectors,whilst total renewable generation increases rom 120 TWh in 2020 to 140 TWhin 2030 this is sucient only to keep the share o renewables in generationconstant at around 30%.

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6 We note at the time o writing that the Government is consulting on the tari rates or installations above 50 kW.

Thereore we recommend that urther support should be provided through theROC regime or under the new electricity market arrangements. Further R&Dunding should also be considered in the context o the next spending review,given the early stage o marine technologies.

Microgeneration ambitionIn considering appropriate ambition or microgeneration and small-scalerenewables (i.e. sub 5 MW), there are two key actors:

Microandsmall-scalepowerisrelativelyexpensivecomparedtolarger-scalelow-carbon technologies. Based on the eed-in tari (FIT) levels that came intoeect in April 20106:

Micro wind generation costs up to 35 p/kWh or systems below 1.5 kW (e.g.compared to around 9 p/kWh or larger-scale onshore wind generation), withlimited scope or signicant cost reduction.

Solar PV currently costs around 35-40 p/kWh or installations up to 10 kW,and around 30 p/kWh or installations between 10 kW and up to 5,000 kW.Although there is signicant scope or cost reduction, there is still a highdegree o uncertainty over when it will become commercially viable in the UK(see Chapter 1).

Given the Governments current ambition to incentivise around 2.7 TWh peryear o additional generation rom micro and small-scale generation by 2020(o which 1.6 TWh is solar PV), support or these technologies under the FITscheme (Box 2.2) could add around 0.1 p/kWh to household bills in 2020(around 4 per year).

ThereissignicanteortgloballytoreducesolarPVcosts,includingdeploymentin countries with more advantageous levels o insolation, with limited scope orthe UK to infuence the pace o cost reduction.

This suggests an appropriate strategy or the UK would be to monitor closely theresults o solar PV support in other countries, and to buy in this technology at alater stage depending on cost reductions achieved.

Given the current high costs, it is appropriate that solar PV, and microgenerationmore generally, makes only a very limited contribution to achieving the UKs 2020renewable energy target. Signicantly increasing ambitio

ccc_the renewable energy review

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